New Fight over Old Tax Issues

Report to Members

Another budget season has come and gone with Governor Christie signing a $32.5 billion spending plan. However, as the debate has come to an end and we look toward the future, this year’s activities may lead to potential concerns for New Jersey businesses.

On the positive side, business tax reforms continue to be phased in for the fourth year in a row, and no broad-based taxes rose. But that did not stop some legislators from trying to take us back to the bad old days with new proposals to bring back old tax increases.

Less than a week before the budget deadline, Democratic legislative leaders dusted off two old tax increases that have hurt New Jersey’s businesses in the past—a surcharge on the Corporate Business Tax (CBT) and an increase on the top income tax rate. Fortunately, Governor Christie vetoed both tax increases and used the line-item veto to cut the extra spending out of the budget. Had he not acted, New Jersey taxes would have risen by $1 billion.

For the last couple of years, Governor Christie and legislative leaders have worked cooperatively to improve the business climate. They avoided many of the one-shot budget gimmicks that had become routine in Trenton and balanced budgets without broad-based tax increases. While the two sides did not see eye-to-eye on everything, they were able to forge compromises that produced breakthroughs on some of the biggest issues that confronted New Jersey—property tax reform, regulatory reform, business tax reform and pension and benefits reform.

Since 2010, the income tax and CBT have been rolled back to their current levels. Additionally, the state has phased in numerous tax reforms, many of which NJBIA had been working on for years, including the single-sales-factor corporate tax reform, the extension of net-loss carry-forward provisions to small businesses, and the phase-out of the Transition Energy Facilities Assessment, a sales tax on energy that was supposed to have been phased out years earlier.

However, as these tax reforms were going into effect, Democratic lawmakers introduced a bill to increase the tax rate on income over $1 million to 10.75 percent. It was billed as a tax on “millionaires,” but the fact is it would have been a significant tax increase on small businesses, many of which pay the state income tax rather than the corporate tax. Legislators also proposed a 15 percent surcharge on corporate taxes. These increases would have made New Jersey taxes, which are already among the highest in the country, even higher.

What’s more, these tax increases would have hurt businesses at a time when the economy is still struggling, even as millions of New Jerseyans count on these businesses for their jobs and for their livelihood. There is no magic pot of money from which businesses can pay higher taxes and maintain their current operations. If taxes go up, businesses will have less revenue to spend in other areas such as employee salaries and benefits, and investment.

These tax increases might have increased revenues in the short run, but they ultimately would have hurt small businesses, damaged the state’s economy, and created even greater fiscal uncertainty in the future. They would have sent the wrong message to the business community, making it more difficult for New Jersey to create jobs, encourage investment, and grow the economy.

Governor Christie’s veto of both the income tax increase and the corporate business tax surcharge sends the right message to the business community and will allow the state’s business climate to flourish. However, although the Governor vetoed the tax hikes, the legislature has indicated it may not be through trying to move in that direction and they may try to raise the income tax through a constitutional amendment in the same way they recently increased the minimum wage.